Cash management gets real

Published: Sep 2021

Many treasuries still rely on manual processes and spreadsheets for cash management processes. But the COVID-19 pandemic has forced a reassessment of cash management and brought real-time liquidity and cash management closer to reality. New technologies are providing the catalyst.

Woman using virtual reality headset

Despite the advance of digital technology into everyday lives, many treasurers continue to rely on manual processes and spreadsheets. But the uncertainty and liquidity issues caused by the COVID-19 pandemic underlined the need for speed and accuracy in cash management. For many treasurers, the time has come to leverage new and emerging technologies and commit to a digital treasury environment that will enable real-time cash and liquidity management.

Financial technology provider Bottomline Technologies’ 2021 Payments Barometer found that despite the cashflow challenges faced by many businesses, accurate forecasting is lacking, with 48% of the 800 organisations surveyed admitting their cash forecasts are rarely accurate. Among enterprise organisations, this lack of visibility increases to 56%.

However, the survey found that few businesses – 8% – aim to prioritise improving cash forecasting in the next 12 months. Financial decision-makers also tend to use more than one method to manage cashflow, with 37% of small businesses still using manual calculations on Excel, the survey found.

“The pandemic highlighted the need for accuracy and speed,” says Tracy Kantrowitz, Vice-President of Marketing for Treasury at Bottomline Technologies. “Treasurers were the stewards of the information that CEOs needed in order to make business decisions about furloughing staff or keeping them on. A treasurer’s role was no longer about just cash positioning and this shed a light on how inaccurate and inefficient existing processes were.”

Tom Wood, Head of Global Liquidity and Cash Management, HSBC UK, says the pandemic has accelerated companies’ existing digital treasury strategies. “Many treasurers were striving towards this pre-pandemic and treasury teams of all sizes and types of business are at different stages of their own digital development, as are their banks,” he says.

Companies in the early stages of digital transformation have focused on automating processes such as administration, contracts and payments tracking, while more sophisticated and advanced treasurers are moving to decision-making tools for cash-flow forecasting. “Overall, there is more hunger from our client base to talk to us about real-time digital solutions than in the past, which is as expected given the impact of the pandemic.”

Bert van Drie, Global Head Cash and Liquidity Management at ING Wholesale Banking, says there has arguably never been a situation as uncertain as the pandemic. “This has increased the importance of cash management for companies,” he says. “Companies were suddenly confronted with drastically decreasing or increasing demand for their products and immediate and real-time insights in cash, lending facilities and (supply chain) risk management became even more important.”

Stephen Randall, Global Head of Liquidity Management, Citi, says the pandemic refocussed the attention of companies on the importance of cash, in a similar way to the last financial crisis. “Companies realised they had to have a laser focus on concentrating cash and redeploying it to where it was needed most,” he says. “This gave them visibility and the ability to best support the liquidity needs of the operating business.”

Cash management has always been seen as important, says Peter Dehaan, New Business Director, Cash and Liquidity Management at technology company SmartStream, but much has changed. “The pandemic was almost like a natural disaster, overnight immediate and significant changes in working patterns and customer behaviours occurred,” he says. “When you have such change you realise the importance of real-time, robust, auditable information which is readily available.”

Normality changed much faster than anticipated, he adds. The human element and interaction that enabled organisations to successfully manage their business pre-pandemic was now at arm’s length as treasury team members worked remotely. “Forecasting and visibility of the balance sheets were stretched, with companies drawing down on revolving credit facilities. In a number of financial institutions this was exacerbated given the volumes, essentially creating the need to establish a banking ‘track and trace’ system for cash movements.”

The shift to remote working is a point also highlighted by Bottomline’s Kantrowitz. Many treasurers felt comfortable with the status quo of manual processes and spreadsheets, she says, however during the pandemic team members were no longer able to walk up to a colleague’s desk to ask a question, for example. Moreover, the collaborative technologies such as Teams that were used to enable staff to work together remotely made life easier and opened the eyes of many treasurers to the benefits of such technologies.

With the initial shock of the pandemic over and governments and businesses discussing recovery and ‘building back better’, existing cash management processes and systems are coming under scrutiny.

HSBC UK’s Wood says there has been reluctance among some treasurers to move to digital treasury technology, caused by concerns over loss of control of processes and cyber risk. “There has always been an element of this, although digital processes are often more secure than manual ones,” he says. “There is a shift away from this attitude, but there are always people who find it difficult to change historic systems and processes. The pandemic has forced a change away from dated processes that many people were very comfortable with.”

Moreover, digital first was already the direction of travel for treasury functions. “Companies are moving away from physical products such as cash and cheques, which are operationally cumbersome and generally higher cost,” he says. Virtual account solutions and other digital technologies, such as HSBC Global Wallet, a new digital, multi-currency payment solution, will enable treasurers to transact faster and have better visibility.

All treasurers had similar challenges during the initial phases of the pandemic, says Kantrowitz, but those relying on manual cash management processes struggled more than those with more innovative cash management systems. The newer generation of cloud-based systems such as Microsoft Azure and Amazon Web Services enabled users to better connect the disparate pieces of information that typically reside in AP, AR and other accounting systems, she says. “From a decision-making point of view, the treasury infrastructures based on the new digital generation of treasury management systems fared much better.”

The companies that had a handle on the fundamentals, with efficient and automated cash pooling structures already in place and the systems and data to monitor cash balances and forecast future liquidity needs, were able to more easily make decisions about cash deployment during the early months of the pandemic, says Citi’s Randall. “Without the fundamentals, such decisions become more complex and deployment of cash is slower and less efficient.”

Martin Gray, Managing Director in the Restructuring Advisory practice at risk solutions provider Kroll, says as a result of the pandemic, finance teams are “drastically changing in terms of their structure, organisation and processes. Thereby, businesses are scrambling to manage this adjustment by investing in their technological solutions. The accounting and finance branches have become a key area of focus for companies.”

While the pandemic has provided a catalyst for reviewing cash management processes and systems, it is not the only driver. Instant domestic payments systems and the moves towards open banking and application programming interfaces (APIs) are highlighting the inadequacies of current cash management technologies. The proliferation of real-time clearing and settlement mechanisms will eliminate the established batch, end of day processing environment and will transform liquidity and collateral management.

Wood says one of the major benefits of digital treasury is its green credentials. “Technology such as digital cash flow forecasting tools can remove a lot of paper from operational processes while also removing inefficiencies.”

Technology moves fast and pinning down any one technology that will emerge as the winner is difficult. Dehaan says cloud-based solutions are now more readily discussed by treasurers than they were a few years ago. “Portals and dashboards that align data are key to ensuring people do the right things at the right time. You have to ask yourself, what is worse, latent data or latent liquidity,” he says.

Blockchain technology enables very fast real-time of actual cash positions. “Because of the transparency around it, you can see very quickly when something is wrong,” says Digital Strategist Kate Baucherel. “Speed and transparency are crucial for cash management and blockchain transactions are much faster to settle because they don’t have to go through any third parties.”

The volatility of cryptocurrencies such as bitcoin (which are based on blockchain technology) has held back widespread adoption of blockchain in treasuries, however. “Stable coins, which are tethered to a currency or commodity are emerging and central bank plans for digital currencies indicate the area is constantly evolving. There isn’t much confusion about what blockchain is, but there is a lack of knowledge because it is such a fast-moving area, which is common with any emerging technology.”

The oft-quoted adage, “rubbish in, rubbish out” still applies. Artificial intelligence (AI), machine learning (ML) and robotic process automation (RPA) systems are only as good as the data that are fed into them. “Much of what treasurers are trying to accomplish in cash management will depend on high quality and accessible data,” says Randall. “New and emerging technologies such as AI and ML are very useful and are bringing treasuries closer to real time liquidity management, which is becoming an important requirement. But treasuries must have good data to deliver on their promise.”

ING’s van Drie also points to data as an important element. “Data Analytics, robotics, blockchain and APIs are ‘buzzword’ technologies aimed at improving the treasury function. Fintechs in the open banking space, enterprise resource planning (ERP), treasury management system (TMS) providers and banks all step up to provide the platform for the future, particularly for real-time cash management, for cashflow forecasting and for risk management.”

These solutions can bring tangible benefits in terms of better informed financial decisions, but van Drie warns that a careful strategy is required. “Which role do you want to play as treasury? Should it be fully integrated in the supply chain, or more focused on the financial and risk side? What is the culture of your company – more decentralised or centralised?”

Kroll’s Gray says RPA is increasingly used by businesses to automate “monotonous” treasury management processes. “If businesses scale the technology properly and adopt a holistic approach, the future could be bright in terms of ROI for CFOs.”

A technology is only as good as the organisational environment in which it works, he adds. Treasurers should consider how technology should function in the entire organisation and how easily data from subsidiaries of the right quality can be obtained and how the most value can be added.

Manoj Mishra, Vice-President, Consulting Services at CGI, says treasurers often feel “left behind” compared to their retail experience. “We are seeing treasurers demanding the same user experience that they have as a retail customer,” he says. “Many treasurers and CFOs have made it clear to their banks that they should modernise or risk losing their business.” Treasurers are seeking customer centric user experience, unified platforms and real-time, predictive insights, he adds. “We strongly believe that these changes in the next two to three years will help transform CFO organisations making them nimbler and efficient.”

Highly connected, open treasury systems that enable easy onboarding of clients are the future of cash management, says Kantrowitz. “The biggest benefit of such systems is that they give access to data across all the financial ecosystems, including treasury, banks, ERP, TMS and accounting systems. Treasurers can unlock all of the data, using the right systems and tools to be more proactive and intelligent in analysis of cash flow and in vendor management.”

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